ASIA: Goldilocks economy a fairytale or bear story for growth or inflation?

All politicians strive for the ‘Goldilocks economy', which is neither too hot, nor too cold, but just right, thus allowing for steady economic growth with moderate inflation.

The question is, can China achieve this? China began monetary tightening this year by increasing the Require Reserve Ratio in its banking system, in order to soak up excess liquidity and reduce the risk of high inflation. This is reminiscent of 2004. During that period, China went though the same exercise of monetary tightening, and contained inflation to a peak of 5.3%. In July 2005, China also dropped its peg to the US dollar, and allowed the Chinese yuan to appreciate 21% over the following three-year period. In economic theory, currency appreciation will promote deflation as im...